The 2026–27 Federal Budget has delivered the most significant reform to property taxation Australia has seen in years. Treasurer Jim Chalmers framed the package as a direct response to housing affordability and intergenerational inequity, and the centrepiece measures - changes to negative gearing and capital gains tax (CGT) - are designed to shift investment capital away from established homes and toward new housing supply. For our clients with property interests, whether as homeowners, investors or first home buyers, here’s a plain-English summary of what’s changing and what it could mean for the market over the next few years.
Negative Gearing: Limited to New Builds
From 1 July 2027, negative gearing will be restricted to new residential properties. Investors who purchase an established home after Budget night (12 May 2026) will still be able to deduct rental losses, but only against income from residential property (including capital gains), not against wages or other income. Unused losses can be carried forward to future years. Importantly, all existing investment properties held before Budget night are grandfathered, meaning current arrangements continue unchanged.
Investors who buy new builds will retain full negative gearing benefits, both before and after July 2027, as an incentive to add to housing stock rather than compete for existing homes.
Capital Gains Tax: A New Discount Model
The familiar 50% CGT discount is being replaced from 1 July 2027 with an inflation-indexed discount, alongside a minimum effective tax rate of 30% on capital gains. The Government’s rationale is that investors should only be taxed on their real (inflation-adjusted) gain, not the nominal gain. The change applies prospectively, so gains accrued before 1 July 2027 retain the existing 50% discount, and investors in new builds can choose whichever arrangement suits them. Most superannuation funds, including SMSFs, and widely held trusts are excluded from these changes.
Other Housing Measures
• A new $2 billion Local Infrastructure Fund to help councils and utilities connect water, power, sewerage and roads to new housing developments - expected to support up to 65,000 homes over the decade.
• The ban on foreign buyers purchasing established homes has been extended to mid-2029, further reducing competition for existing stock.
• Continued work with states and territories to harmonise renters’ rights nationally under “A Better Deal for Renters.”
• Build-to-rent tax concessions remain in place, supporting an estimated 80,000 new rental homes over the decade.
What This Means for the Market
Treasury estimates these reforms could help around 75,000 additional Australians into home ownership over the next decade, primarily by easing the competitive pressure investors place on established homes. However, industry commentary suggests the practical effect is likely to be gradual rather than dramatic. Treasury modelling reported alongside the Budget points to slower price growth rather than outright price falls, and several economists have warned that reduced investor activity in the established market could place modest upward pressure on rents in the short term, as the market adjusts to the new settings.
For first home buyers, the changes may translate into less competition from investors at auction, though affordability will still hinge on supply keeping pace with demand. For existing investors, grandfathering means there is no need to rush into decisions about current holdings, but those considering new acquisitions will want to weigh up established versus new-build strategies in light of the changed incentives. For builders, developers and tradespeople, the redirection of investment capital toward new supply may support increased activity over the medium term.
A Note of Caution
These measures have been announced but not yet legislated, and details may change as draft legislation is finalised. Some changes have already been announced post-budget night; it would not surprise to see more.
What the effect of these changes will be is the subject of intense debate. Above all else it is important to remember there is a shortage of residential homes where people want to live in Australia. These tax changes will not help this problem (even the Government said that). The demand for residential property from both owner occupiers and renters continues to grow faster than supply, which will continue to put pricing pressure into the market.
We recommend against making major property decisions based on Budget announcements alone. If you’re considering buying, selling or restructuring a property portfolio in light of these reforms, please get in touch with our team - we’re happy to talk through how the changes may apply to your specific circumstances.